Wine premiumization, wine prices, and quality

Wine premiumization
The Wine Curmudgeon Wine Sample Index and the wine slowdown

Wine premiumization: Prices keep going up, quality keeps going down, and fewer people are drinking wine. Am I the only one who thinks that’s not a coincidence?

This is how deeply premiumization has upended the wine business: A reader emailed me to say I shouldn’t use the prices I paid for wine in my reviews. Instead, I should use the prices on an industry website, which are typically more than what I pay.

What twisted wine universe do we now live in? Is premiumization so deeply ingrained in the system that cheap wine should not exist, even if it actually does?

Premiumization is the idea that consumers are trading up, that we’re willing to pay more money for a better quality bottle. In theory, this makes perfect sense. Of course I will pay $15 for wine if I know it’s going to be appreciably better than a $10 bottle.

But theory, to paraphrase the economist John Maynard Keynes, is for dead people. The wine business, in its dedication to short-term profit at the expense of long-term growth, is selling us more expensive wine that isn’t appreciably better. It just costs more money, and we’re supposed to accept that as the natural order of things.

I got a sample of an Italian white wine this summer, which came in a flowery bottle with an even more flowery name. My tasting note? “Very nicely done $10 blend (chardonnay, pinot bianco) with a little lemon, minerality, and crispness. For some reason, the suggested retail price is $20, making it one of the most overpriced wines I have ever tasted.”

It’s not just me

A friend of mine, who has been selling quality wine at Dallas’ best retailer for more than 30 years, told me he no longer understands how wine is priced. He cited two examples: Spanish albarino, once $10 and $12 and delicious, is now $18 and $20 and not very albarino-like, while French picpoul, “which should cost $8, costs $16.” These are wines that people in Spain and France drink daily; in the U.S., they’re priced for special occasions.

Or, as a review of a $24 wine on Wine Industry Insight put it recently: “Thin, acidic, and lacking fruit.” How far has wine fallen when $24, which used to be enough to buy something fabulous, now only pays for thin and acidic?

I write all of this in the shadow of the end of the wine boom: Flat sales, more young people who see wine as something for their parents and grandparents, and experts who say drinking will kill us as surely as cigarettes. It’s what Rob McMillan of Silicon Valley Bank calls the new normal – that wine consumption won’t return to what the industry wants. Instead, he writes, “don’t be surprised if young consumers drink less alcohol tomorrow, and those who do drink continue to embrace craft spirits and beer instead of wine.”

Given all of this, shouldn’t it be time for the industry to put an end to the premiumization that gives us $8 worth of wine for $15? If wine is in a fight for its future, shouldn’t it focus on selling well-made and affordable products in response to the competition from craft beer and spirits?

That makes perfect sense

But I long ago stopped expecting that sort of wisdom from wine. In this, I thought I saw the end to wine premiumization several times over the past couple of years, and I’m not the only one who did. But just when you think it has run its course and this foolishness can’t go on forever, it does a Freddy Kreuger. How else to explain when the man who runs Jackson Family Wines wants the federal government to eliminate his competition with a tariff wall?

All of which leads me to wonder how far we are from something that wine economist Mike Veseth has predicted for several years: That wine will become like opera, which was once mass entertainment but is now reserved for a wealthy elite.

That’s a new normal that won’t make anyone happy.

Photo “tokyoWeek1 047” by nate_uri is licensed under CC BY-NC-SA 2.0 

More about wine premiumization:
“Reasonably priced at $40:” Wine premiumization is out of control
The premiumization backlash
Has premiumization damaged wine’s popularity?

7 thoughts on “Wine premiumization, wine prices, and quality

  • By Robert Rex -

    I’m a winemaker and have been for 46 years, 37 in Sonoma Valley. When I started Deerfield our cost to make a bottle of wine was about $4.00. Retails is typically 4 times cost. 4 x $4 = $16.00. We doubled our cost to sell to the distributor. I learned when I was a kid that every successful manufacturer has to at least double their money, cost x 2, to the lowest selling price. OK, $8.00 to the distributor. The distributor marks it up 20% = $9.60 and adds landing cost = $1.00 = $10.60 to the retailer. Retailer marks it up anywhere from 30% to 50%. $10.50 x 1.3 = $13.65 – discount retailer. $10.50 x 1.5 = $15.75 – wine shop.

    Now roll forward 30 years. Grapes that when I started cost $700 per ton in Sonoma now average $2,500 per ton. To be expected right? 30 years. Bottles at that time cost around $2/cs. Now, with the Trump tariff adding $.30/cs the cost is $8.65 (that’t the low end, made in China. We can’t afford to by local, even after the tariff. Labor, what do you think 30 years meant? Corks, labels, the only thing that hasn’t gone up is the capsules, because now we use a laminated product instead of lead or tin. The bottom line is that this same wine that cost us $4.00 in the 70s now cost us $10.00 to $12/bottle, our COST. And, we’re in Sonoma. Those $2,500/ton Sonoma grapes are $5,000 in Napa. Why is Italian wine cheaper? Grapes grown by families that have owned the land for generations and have no land cost in their grapes. Labor at the equivalent of $5/hour. That’s most of it.

    We no longer double our cost. Now, instead of a 50% margin we’re lucky to get 30%. The ones that have really made out are the retailers. They make more on a bottle of wine than the manufacturer does.

    What did gas cost in 1970? Before the oil embargo in 1974 it was about 50¢ per gallon if I recall. What did a car cost? $6,000, not $60,000. Don’t blame the wineries. We are a family winery and are barely making a living.

    I also disagree that quality has gone down. That is simply not true if you compare apples to apples. You can’t compare a $20 wine to a $10 wine when this wine writer was a kid. You’d have to compare it to a $2 wine. Wine quality world wine, and especially in California gets better every decade. The wines are more delicious, better for you health wise (cleaner) and age better. No comparison. I’ve been a student of wine for 55 years and this article is a cheap shot.

  • By Wine Geek -

    I am a long time wine retailer and importer. I am in agreement on the “wine premiumization” being a bit of a way for the industry to shoot itself in the foot. I look at the wines being imported and sold at exorbitant prices. I believe that this is more of a problem with imports than with US produced wines, although there are areas in California that certainly are guilty of this same premiumization disease. It looks to me that the large importers are taking inordinately large markups on many of the imports. Wines that a couple of years ago were $9.99 at retail are now $20 because they have a new appellation that is used to justify a small increase in price to the producer but the importer now takes a 100% markup rather than the 40% they used to take on the old “lesser” appellation that was on the same wine. Sure this allows the importer a larger profit, but it reduces sales overall and the producer makes less because sales are less and the number of consumers that are willing to spend twice as much for the wine is substantially less.
    Wholesale consolidation has only increased the emphasis on “premiumization” as the ability for smaller distributors to exist in the world of “exclusives” has diminished competition and produces a restricted marketplace that encourages higher prices and less selection. Higher prices reduces the pool of potential buyers and selling lesser wines for more money only increases the possibility of losing consumers to competitive beverages.

  • By Ed Masciana -

    Oh my, didn’t this turn into a hornet’s nest! First of all, guys, CHILL! Your’e each taking extreme sides and neither are on target. First off, define a “good” wine. Well, most people would say it’s a wine they like. Now, if I like it and you don’t then my good is your bad and could easily be vice versa. I quit judging wines at all the major fairs 20 years ago because the judging was dreadful. Most just voted for a wine they personally liked whether or not it was indicative of what it was and where it came from or not. Many were un-phased by excessive sulphur, H2s, VA and the like and so on.

    As far as prices are concerned, let me first say that I was the first author to publish a book 23 years ago that addressed the cost of making wine and it was heralded as a godsend from a lot of wineries because it made the general public aware of the enormous costs. That being said, it doesn’t stop wineries owned by dot com billionaires from charging a ton for their wine to stroke their ego. But, the consumer can choose to buy it or not. That is the power of the consumer and they exercise it every day.

    I really don’t care what people charge for their wine. I’ll buy what I think is a great value and quite honestly there are a lot of wines on that list from all over the world. So, stop wasting space bitching and moaning about prices and the press and perceptions of people who don’t matter. Winemakers: make what you think is a good wine and price it accordingly. Everybody else: buy or don’t buy. Your choice.

  • By Luis CAPELLI -

    “Am I the only one who thinks that’s not a coincidence?”.
    You are not alone Jeff….this ” price-going up-revolution” count with limited consumers, and they (wine drinkers) wants more (quality) by the same bottle price, as it happens at the consumer markets for the rest of the food and services

  • By Nathan Lovejoy -

    I can see some upside from this maybe. Perhaps this will direct more attention to lesser known regions/varietals as there’s a wider opening for them to be priced competitively, and in turn picked up by distributors/retailers to cover the end of the market where choice is thinning out.

  • By Old Timer -

    I too remember when coke was a nickel, but you don’t hear me complaining. The problem isn’t the price of the wine, its that your low wage has remained stagnant over time. Ag is volatile and inflation rate is independent of your socio-economic inflation rate. If wages went up at the pace of real inflation, we wouldn’t have this problem. Talk to your employers, not the winemaker or farmer.

  • By Glenn -

    There are some great comments from all sides here….very healthy.
    Buy a ten dollar bottle of wine and I dare you to get professional analysis on it. You won’t believe what’s been added or the processes the wine has suffered through to become (just) fit for human consumption.
    I bet if I cooked you a T-Bone steak worth 50 cents, you wouldn’t eat it (or trust me), so simply don’t drink cheap bad liquids, or ride a motorcycle wearing a 10 dollar helmet etc etc etc.
    If consumers can’t tell the difference in quality, then they can live in bliss, or perhaps, instead, do a wine course, then it becomes incredibly easy to understand why you are paying less or more, therefore avoiding the overpriced average wine, but also being able to recognise a 50 dollar bottle that delivers like a 500 dollar bottle.
    I don’t sell to major discount chain retailers, as their ‘race to the bottom’ pricing does not work for me, or anyone else in our relationships.
    Humans love finding bargains but we love to spoil ourselves at times too, so we shouldn’t add to the mediocrity of living by buying on price alone.
    Yes you can buy wine for 100 dollars that you may not like, just as you can sometimes buy memorable wine for 20 bucks, but dip into a lower price bracket and you can bet no one from the grower up is making sustainable margins.
    Quality winemaking takes time, group effort and plenty of money.
    Interestingly, almost anyone can buy raw spirit, add botanicals, and a week later, bottle/label it and call it 120 dollar Gin…and folks are lapping it up.

Comments are closed.